The fuss over the fiduciary rule.

Peter D. Recchia, CPA, AIF

May 17, 2017

There has been a lot of discussion among financial experts on the Department of Labor’s (DOL) fiduciary rule that is slated to go into effect on June 9. To many investors, the debate over semantics is clear as mud. So let’s put it in layman’s terms.

The DOL created the fiduciary rule to protect the best interests of all investors, plain and simple. The rule proposes to do this by closing unintended loopholes in the current law that allow non-fiduciaries (commissioned brokers) to place their own interests (profits) before sound financial advice to the client. To understand this more fully, it’s important to distinguish between a fiduciary and a non-fiduciary.

A fiduciary:

  • is in a trusted position to manage investments,
  • is required by federal law to act in the best interest of the client,
  • is duty-bound to avoid or mitigate any potential conflict of interest, and
  • must disclose a conflict of interest that happens to arise.

A non-fiduciary:

  • is paid commissions from products sold,
  • can have a bias toward products that offer higher commissions, and
  • is held only to a suitability standard that requires no disclosure of conflict.

Reactions and delay.

As you might imagine, some non-fiduciaries and the associations that represent them have pushed back against the rule. They claim that the rule’s complexity will place a costly burden on them to meet the new compliance standards, thereby lowering profits and forcing them to turn away retirement investors with modest assets.

This pushback prompted the request and approval of a 60-day delay that extends the rule’s original implementation date of April 10 to June 9. The delay provides an opportunity for non-fiduciaries to A) better prepare for the new regulations, and B) fight for softening the language to be more favorable to the sales process.

Our position.

Before the delay was ultimately accepted by the DOL in early April, judges in four court cases denied plaintiffs seeking the delay, opining that delay would not be in the public interest and that benefits to investors outweigh the costs to non-fiduciary firms. We agree.

Millions of ordinary clients are counting on their retirement plans and depend on the advice of investment professionals. If they are steered into investments that are not in their best interests, but still pay commission-based fees, they may not be able to retire securely, or even at all. 

As to the claim that investors with modest assets can’t be serviced adequately under the new rule, we say hogwash! As fiduciaries, we can manage investments of any size profitably, while serving the client’s best interest.

We’re hopeful that on June 9 the rule will be implemented as is, without modifications that could put retirement investors at risk. 

About Peter: I am president and Founder of 4Wealth® Financial Group, a CPA and Accredited Investment Fiduciary (AIF), and have over 25 years of experience. I take pride in developing custom solutions for every client, whether it involves tax planning, creating large or small pension programs, or simply offering sage advice that is always in my client’s best interest. I can be found on LinkedInTwitter, Facebook, and at (708) 695-5300.

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